Cryptocurrency Trading: Learn How To Trade (Guide)

New cryptocurrencies are launched almost every day in this day and age. The latest statistics reveal that cryptocurrency is going to be the future of banking. In fact, Bitcoin — the leading cryptocurrency in the world — maintains its dominance on the market by nearing its six-thousand dollar price. That is why investing in cryptocurrency is so beneficial to the average investor.

Cryptocurrency trading is the process of buying and selling cryptocurrencies. A cryptocurrency is a digital currency that uses cryptography for security.

There are numerous benefits to trading in cryptocurrency as opposed to forex trading. In fact, this currency could very well be the next universal world currency.

There are various types of cryptocurrencies that are available for trading, of which Bitcoin is the most popular. Other cryptocurrencies that are common include Ethereum, Litecoin, Ripple and Monero.

The cryptocurrency market has been booming over the past few years since investors are starting to see its potential. The currency is extremely volatile – which makes it such a profitable investment today. Even though the ROI for crypto is unparalleled for percentage gains, placing your money in the wrong coins at the wrong time may lose your hard-earned money.

Before engaging in cryptocurrency trading you have to find a suitable cryptocurrency wallet and an exchange to transact on.

A cryptocurrency wallet is where you store cryptocurrency on a blockchain and consequently exchange it. Some of the most common cryptocurrency wallets include Exodus, Ledger Nano S and Coinomi.

That is why cryptocurrency investment and trading should be done only with professional assistance — unless you are an expert on the subject. The profit potential of the investment is quite huge.

The currency is almost impossible to counterfeit. All transactions are recorded by the network of computers. That way no one is able to change the history of transactions on all these computers.

One may be able to change the transaction locally, but the overall network consensus won’t agree with the alteration. In fact, such alterations will be refused by the network. Hence, it is extremely difficult to counterfeit cryptocurrencies.

Start Trading With Cryptocurrency

To start trading, look for a reputable company which offers both an exchange and a wallet. Preferably use the most common ones such as Coinbase, Bittrex, Binance or Kraken.

Cryptocurrencies are stored in a blockchain, which is called a “cryptocurrency wallet”

The first step is to sign up to your preferred service so that you create a cryptocurrency wallet to store your digital currency. Proceed to connect with your debit card, credit card or bank account so that you can exchange cryptocurrency with your local fiat currency.

Coinbase does not support some cryptocurrencies and thus you will need move your Bitcoin to other exchanges to buy other rare and unique cryptocurrencies.

The fees for moving cryptocurrencies between exchanges can be exorbitant thus you should always be cognisant of the costs.

It is also possible to trade cryptocurrencies though forex and stock trading platforms that offer cryptocurrency CFDs.

CFD, short for Contract For Difference enables individuals to trade by engaging in a contract between themselves and the broker rather than taking a position in the market.

Most forex and trading platforms such as Etoro offer Bitcoin, Litecoin, and Ethereum CFDs.

Cryptocurrency Trading And Factors That Affect Price Movement

Cryptocurrencies are considered an extremely volatile market. In fact, the value of Bitcoin grew more than 900% within the space of a few days in July 2010.

Also, in December 2017, the value of the currency dropped by 23% in value within twenty-four hours. This volatility is what gives the investors an opportunity to make big profits on the cryptocurrency market.

It is important to understand how cryptocurrency markets work before trading in them. You can use various strategies such as swing trading, buying low and selling high, and so on. Trading involves risk and thus you need to equip yourself with the relevant skills and knowledge before delving into it.

Similar to investing in any other commodity, there are various strategies to investing in cryptocurrency. Day trading and long-term holding are two of the most popular cryptocurrency trading strategies.

n order to effectively day trade cryptocurrencies, the investor should be able to keep track of the relative values of different and how their values change over time.

Research is very important in this regard. You should be able to look into the future events for various cryptocurrencies and predict the rise and fall of the currency.

There are usually various factors that affect the price of cryptocurrencies, you need to understand them so that you can be successful when trading.

Factors That Affect Crypto Currency Prices

There are many factors influencing cryptocurrency prices

Supply and Demand

Supply and demand is the first factor that affect prices. One of the most common cryptocurrencies is Bitcoin with a supply of approximately 16.8 million. Limited supply in the face of increased demand in a cryptocurrency can lead to a surge in price.

Market Sentiment

Another factor is the cryptocurrency market sentiment. It is important that you have a read into the market mood around a particular cryptocurrency before taking a position.

Note that the wider the coverage on a cryptocurrency the greater the buying interest.

Always screen out and eliminate less known cryptocurrencies that are highly illiquid. Before entering a position, do a thorough research on the market sentiment.

Crypotocurrency Mining Difficulty

The cost and technical difficulty of adding a block of cryptocurrency to the block chain, that is, cryptocurrency mining difficulty affects the price of cryptocurrencies. A lower mining difficulty leads to increased supply and hence a decrease in price.

Order Books and Stop Orders

Understanding order books and knowing how to use stop orders will greatly improve your results when trading cryptocurrencies.

The order book is simply the amount of buy and sell orders placed on a particular cryptocurrency at a particular price. bThe order book is usually updated in real time and is a useful tool in determining the market’s sentiment.

The order book can also give an indication of the liquidity of the cryptocurrency. Liquidity is important as it determines the ease in which a cryptocurrency can be bought and sold.

Sell stop orders are used to mitigate losses in cryptocurrency trading by triggering an automatic sell order when the price declines by a certain amount or percentage from the buying price.

Whereas a stop loss is set below the buying price, buy stop orders are set above the buying price to ensure that you capture some profits in times of extreme volatility.

Using Technical Analysis In Cryptocurrency Trading

Analysing price trends or technical analysis is definitely going to give you an edge in trading. Learn to measure and understand various indicators such as relative strength index, moving average convergence divergence (MACD) indicator, Bollinger bands among others.

Technical analysis will help you forecast price movements with relative ease.

Relative strength indicators (RSI) measures the speed and strength of the price movement by comparing the current price to the past performance of the cryptocurrency.

The RSI index ranges from 0 to 100. When it is over 70, it means the cryptocurrency is in overbought territory and is due for price correction.

Conversely, if the RSI approaches 30 it indicates that the cryptocurrency is oversold and hence an indication to buy.

Moving Average Convergence Divergence (MACD) on the other hand is made of two exponential moving averages which measure momentum by using the difference in long term and short term trends to project future price action.

Bollinger bands usually track standard deviation in price and are used to track and predict volatility in prices.

Final Notes

Cryptocurrency trading can be a lucrative venture. If you are equipped with the necessary skills and are able to keep trading costs low, you can take advantage of the high volatility in cryptocurrencies and reap big benefits.

Always create your own unique strategy to trade cryptocurrencies.

If you have enough time, you can concentrate your efforts in swing trading but if you are trading part time, the best strategy is to buy a diversified portfolio of cryptocurrencies. Do that when they are cheap and then wait for price appreciation.

Long-term holding is ideal for investors who are patient and more risk-averse. There are many benefits to the long-term holding of cryptocurrencies. It is a less risky and more hands-off process compared to day trading.

These are some of the most effective cryptocurrency trading strategies out there. You should choose the best strategy depending on your budget and personal preferences.